But it looks like those wrist-slapping days may be numbered. “If approved by the CPUC’s Commissioners at its December 20, 2012 Voting Meeting, [the proposal] would open a proceeding to protect public safety and encourage innovation in the transportation of passengers over public highways for compensation,” the CPUC said in a statement. The CPUC added the new companies have created “a situation not encountered before.”

If opened, that proceeding would give the commissioners six months to come to a final decision.

"The tone is positive," John Zimmer, the CEO of Zimride, Lyft's parent company, told Ars. "It's a sign that is different than the cease-and-desist and different than the fine."

Hey buddy, can I get a ride?

We’ve reported on SideCar and Lyft since the two companies launched this summer, and the firms have consistently argued they are not traditional “charter-party carriers” like limousines are. Rather, they maintain they fall under the Public Utility Code that provides for a ridesharing exception.

Uber is different from the other two, as it works with CPUC-licensed limo drivers who already have met the regulatory requirements.

“The big question is not whether the rules change but whether the PUC enforces its existing rules. Uber feels totally comfortable that its partner transportation providers comply with existing PUC regulations and are in good standing with the PUC,” Travis Kalanick, Uber’s CEO, told Ars.

“Lyft and Sidecar, however, have a different challenge as none of their drivers have complied with PUC regulations including commercial insurance, equipment inspection, and drug/alcohol testing," Kalanick said. "As such, the PUC has a tough decision ahead of it to determine whether the rules should be relaxed for Lyft and Sidecar.”

Questions abound

The new proposal (PDF) outlines specific areas of inquiry that regulators must consider, including public safety, ridesharing, and insurance.

“The effects of this new business model and level of activity on public safety are unknown,” the proposal states. “The Commission has an obligation to determine whether and how public safety might be affected by this new business model.”

The CPUC wonders specifically if the ratings element (where drivers on SideCar and Lyft can rate each other) increase or decrease public safety. The agency also noted the ridesharing exception does not apply if the “primary purpose for the transportation of those persons is to make a profit.” In other words, it casts doubt on whether the new companies should be considered as ridesharing providers.

“Does legitimate ridesharing include the transportation of a passenger on a trip the driver was not otherwise planning to take?” the CPUC asks. “Should the Commission set a minimum level of compensation before regulating these new transportation business models as passenger carriers whether for the drivers or the carriers? If so, how should the Commission determine the appropriate level of compensation?”

Finally, the CPUC wants to talk money—or rather, specifically, insurance. Lyft and SideCar maintain the driver’s individual insurance is sufficient and the company has no liability in the event of an accident. The CPUC's order has some questions about this business model:

If a vehicle is insured as a private vehicle, but involved in an accident while transporting passengers for compensation, what type of coverage would the insurance offer for injuries/damage to the driver, the paying passenger, and any other people involved in the accident and/or the vehicles involved? Has the insurance industry expressed an opinion on covering private vehicles used to transport passengers for compensation? Are these vehicles covered when providing transportation of passengers for hire? Have there been accidents involving drivers from these new businesses, and what was the final disposition of any insurance claims filed?

How the CPUC rules on these questions in the new year could provide a much clearer guidepost for these startups.

Promoted Comments

When I comes to insurance companies I fully expect them to do anything the can to avoid covering anything that happens on your private insurance if they hear you are being paid to provide a ride and I really can't blame them. They function based on statics that say you are likely to cost them X dollars over Y period of time in claims and they base your rates on that. If you alter their likely costs with out informing them of that and allowing them to adjust their rate correspondingly then I think it is reasonable for them to refuse to coverage that. Doing a bunch of extra driving with extra people in the car definitely changes the statistics.

I would expect the sensible cutoff between a ridesharing exception and a profit-motivated provider is somewhere in the ballpark of the IRS per-mile reimbursement rate for business travel - probably something like 70% thereof, to zero-out profit, or 50% to really limit it even if one has some sort of efficiency edge. If there's no profit in operating off-the-books, then people will either get on board with licensing and insurance, or they'll stop providing. On the other hand, if you were headed somewhere anyway, 50+% of the IRS rate to let someone else come along for the ride is probably more than anyone actually gets.

When I comes to insurance companies I fully expect them to do anything the can to avoid covering anything that happens on your private insurance if they hear you are being paid to provide a ride and I really can't blame them. They function based on statics that say you are likely to cost them X dollars over Y period of time in claims and they base your rates on that. If you alter their likely costs with out informing them of that and allowing them to adjust their rate correspondingly then I think it is reasonable for them to refuse to coverage that. Doing a bunch of extra driving with extra people in the car definitely changes the statistics.

I'm still not quite comfortable with the idea of random strangers trying to catch a ride with me, or trying to rent my couch for the weekend (airbnb). Just doesn't seem to make sense from a security and liability perspective. Of course, I've been getting more cautious (paranoid?) as I get older; it's been at least 10 years since I picked up a hitch-hiker.

I'm still not quite comfortable with the idea of random strangers trying to catch a ride with me, or trying to rent my couch for the weekend (airbnb). Just doesn't seem to make sense from a security and liability perspective. Of course, I've been getting more cautious (paranoid?) as I get older; it's been at least 10 years since I picked up a hitch-hiker.

So who's forcing you to rent out your car or your couch?

Just because you're not comfortable with it doesn't mean others shouldn't be able to do it.

I would expect the sensible cutoff between a ridesharing exception and a profit-motivated provider is somewhere in the ballpark of the IRS per-mile reimbursement rate for business travel - probably something like 70% thereof, to zero-out profit, or 50% to really limit it even if one has some sort of efficiency edge. If there's no profit in operating off-the-books, then people will either get on board with licensing and insurance, or they'll stop providing. On the other hand, if you were headed somewhere anyway, 50+% of the IRS rate to let someone else come along for the ride is probably more than anyone actually gets.

This needs to happen, and it needs to spread to other states. There is no reason to continue giving the antiquated taxi industry protection through increased regulation.

Yes, there is a reason that taxis are regulated. You'll find out the first time you're riding in one of these ride sharing cars and there is an accident that the insurance refuses to cover.

Not sure how this affects anyone but the driver of the vehicle. Which is their own prerogative.

If your vehicle gets hit. Your insurance company is going to pay out to you regardless if the person who hit you was covered or not. They will attempt to get their money back from either the drivers insurance or the driver themselves.

If you're talking about a passenger not getting a payout from the insurance company. I'm pretty sure the driver would be held liable in a lawsuit. Either way resulting in a pay out.

On another note. My general thoughts on this are why should the government be getting involved in the financial transaction between two individuals? Why should it be illegal for me to pay an individual to take me from one location to another without some bureaucrat getting in my business?

My general thoughts on this are why should the government be getting involved in the financial transaction between two individuals? Why should it be illegal for me to pay an individual to take me from one location to another without some bureaucrat getting in my business?

Insurance - when you hop into a medallioned taxi (or other government-regulated bus/limo/etc. service), you have reasonable confidence that they're meeting minimum standards. Also applies in some cases to maintenance records/etc.

uniform rates (no negotiation) - this has pluses and minuses. Plus: you aren't in a bidding war with other potential passengers at busy times like holidays, you don't flag down a cab and then see what the rates are, etc. Minus: you might have to wait a while. Personally, I wouldn't like the eBay model of hailing a cab if I fly somewhere around Christmas (at least as an abrupt switch).

universal service - in return for the protected status, taxis aren't allowed to cherry pick people and neighborhoods that they're willing to go to. The standard fares are part of this too and help to prevent a situation in which nicely dressed folks headed to a nice part of town get rides while someone dressed less well and headed somewhere less nice just stands there by the curb waiting forever. In the US, this has racial as well as class history.

victimizing tourists/nonlocals/etc. - you get picked up at the airport in a marked cab like all the others and you know you're not getting the special 5x tourist rate even if you're not from around there. (granted, they could still try to cheat you by taking a long/slow route so it's not perfect protection)

I'm not saying that there isn't room for reform in lots of taxi markets but the present restrections aren't just a result of evil monopolists creating legal restrictions to prevent "innovation".

This needs to happen, and it needs to spread to other states. There is no reason to continue giving the antiquated taxi industry protection through increased regulation.

Who's talking about increasing regulation? This just a question of whether existing regulations for businesses are being adhered to. How is this different from entities like hotels asking whether AirBnB should be allowed to just say they're immune from transient guest taxes on the grounds that their business model is "innovative"?

Don't you think that certain of the PUC concerns are quite valid (such as asking whether passengers and the public are adequately protected by what's essentially a business potentially operating without insurance)?

You can handwave about the driver being liable but that doesn't necessarily mean that the driver is adequately insured for what he's doing, which also involves nonstandard driving like routinely swinging in and out of traffic to the curb in a vehicle which may be much less readily identifiable to other drivers and pedestrians as one which is likely to do that.

When I comes to insurance companies I fully expect them to do anything the can to avoid covering anything that happens on your private insurance if they hear you are being paid to provide a ride and I really can't blame them. They function based on statics that say you are likely to cost them X dollars over Y period of time in claims and they base your rates on that. If you alter their likely costs with out informing them of that and allowing them to adjust their rate correspondingly then I think it is reasonable for them to refuse to coverage that. Doing a bunch of extra driving with extra people in the car definitely changes the statistics.

So people shouldn't be allowed to do what they want with their property because some company might not profit? Should insurers not cover you if you have a sufficiently long commute? And how does charging people to drive them have anything to do with the insurance company?

They do not cover personal injury with their additional insurance, so it's basically useless.

Solomonoff's Secret,

Commercial and personal lines have always been bifurcated. If they want to drive a car for profit, let them get a commercial policy that will cover cars for hire. A personal lines auto policy will definitely not pay out to passengers, and may not cover the driver either.

So people shouldn't be allowed to do what they want with their property because some company might not profit?

No, the idea is that taxis should be properly insured to protect the public in the same way that any other business which might be expected to incur risk/liability while doing business within a municipal or state jurisdiction.

That's where the ideas of licensing and bonding for professionals come from (which is a very different risk/insurance profile from personal use of a vehicle).

A personal vehicle is operated in a very different way (places, times, duration per day, ...) than a taxi. One of these startups just claiming that they are not contractually liable so the driver or their insurance company must be on the hook, without actually confirming that adequate coverage is in place, is not proof that the public (customers and noncustomers) are protected in the event of a mishap.

If you want to argue that taxis are over-regulated, that's fine, but the idea that it's perfectly ok to just ignore taxi regulations on the grounds of claiming to the PUC that you're a ridesharing coordination service while at the same time showing ads on FaceBook and elsewhere advertising your company as a job/income opportunity to potential drivers (rather than a way to share rides and save on expenses) is sleazy and corrupt.

If you're talking about a passenger not getting a payout from the insurance company. I'm pretty sure the driver would be held liable in a lawsuit. Either way resulting in a pay out.

On another note. My general thoughts on this are why should the government be getting involved in the financial transaction between two individuals? Why should it be illegal for me to pay an individual to take me from one location to another without some bureaucrat getting in my business?

If the driver doesn't have appropriate insurance, and doesn't have enough assets, the driver being held liable for damages does not mean that the damages will be recovered by a damaged party.

Regardless of taxi regulations, in California, proof of financial responsibility is required to register or operate a motor vehicle. If your proof of financial responsibility is private insurance, and that insurance does not cover driving for money, then you're not legally permitted to drive for money.

I also believe the government has a legitimate interest in having a higher standard for licensing and financial responsibility for those people operating a commercial venture.

My general thoughts on this are why should the government be getting involved in the financial transaction between two individuals? Why should it be illegal for me to pay an individual to take me from one location to another without some bureaucrat getting in my business?

Insurance - when you hop into a medallioned taxi (or other government-regulated bus/limo/etc. service), you have reasonable confidence that they're meeting minimum standards. Also applies in some cases to maintenance records/etc.

uniform rates (no negotiation) - this has pluses and minuses. Plus: you aren't in a bidding war with other potential passengers at busy times like holidays, you don't flag down a cab and then see what the rates are, etc. Minus: you might have to wait a while. Personally, I wouldn't like the eBay model of hailing a cab if I fly somewhere around Christmas (at least as an abrupt switch).

universal service - in return for the protected status, taxis aren't allowed to cherry pick people and neighborhoods that they're willing to go to. The standard fares are part of this too and help to prevent a situation in which nicely dressed folks headed to a nice part of town get rides while someone dressed less well and headed somewhere less nice just stands there by the curb waiting forever. In the US, this has racial as well as class history.

victimizing tourists/nonlocals/etc. - you get picked up at the airport in a marked cab like all the others and you know you're not getting the special 5x tourist rate even if you're not from around there. (granted, they could still try to cheat you by taking a long/slow route so it's not perfect protection)

I'm not saying that there isn't room for reform in lots of taxi markets but the present restrections aren't just a result of evil monopolists creating legal restrictions to prevent "innovation".

I'd like to live wherever you are. In San Francisco none of the taxi laws are properly enforced. People are routinely denied service based on their destination. Cab drivers try to convince passengers that their credit card readers are broken. Lyft and SideCar are only popular because they provide a solution to a pretty big problem. If the cab situation were as rosy as the picture you paint nobody would use the alternatives.

I agree that there are areas of improvement and some regulation could be helpful but regulation is not always in our best interest.

From a cab drivers perspective and someone that likes innovation. I don't agree with what they are doing because of the fact that each locality that we pick up in requires for us to be permitted to pick up. Ie company license as well as individual license. That means for the driver criminal and mvr report. A local unlicensed company had a driver operate without creds turned out to have a criminalecord and registered sex offender. He caught within 2 days do you want to hop in a car with someone like that or who is drunk or high on drugs

How can the California Public Utilities Commission fine them if the companies do not need to go through CPUC to operate? Isn't that a rather hollow fine? It would be like the CPUC trying to fine me, I would just shred their letter.

Any lawyers around that can offer insight on organizations that you do not actually work with trying to fine you?

How can the California Public Utilities Commission fine them if the companies do not need to go through CPUC to operate? Isn't that a rather hollow fine? It would be like the CPUC trying to fine me, I would just shred their letter.

Any lawyers around that can offer insight on organizations that you do not actually work with trying to fine you?

Edit: To fix grammar.

Try to practice law, or even do electrical work, and then say that the governing bodies do not have the power to fine you. We'll see how fast your head spins on the way to jail. The companies assert that they don't need to go through the CPUC. The CPUC begs to differ.

They also assert that they are ride sharing arrangement's to try and get out from regulations like needing commercial liability insurance, which is left unchecked would result in passengers being left high and dry if they get injured during a ride.